BUDGET 2017 : FAIR IS FAIR – OR IS IT?

Scott Morrison delivered the 2017 Federal Budget last night, stating” …Our choices are based on the principals of fairness, security and opportunity…” as he laid down a budget promising “better days”. With many commentators  saying is a considered plan for the future, laying a solid foundation with a view to achieving a budget surplus of $7.4 billion by 2020-21, what does the budget mean for you.

In Education:

There’ll be more Commonwealth funding per student for most schools. The Federal Government will give schools an extra $18.6 billion over 10 years. The Government says it will standardise school funding, but as part of that about two dozen schools will lose Commonwealth funding and about 300 more won’t receive as much as they expected.$1.5 billion will also be invested in new apprentices over 4 years from 2017-18.For uni students, fees will rise by 7.5% by 2021 and debt repayments will commence at earnings of $42k instead of $54k.

If you’re a parent:

Parents hoping for an increase in the family tax benefit will be disappointed, with the Government opting not to proceed with a promised increase of $20 a fortnight per child, saving the Budget $2 billion over four years.

Families will be subjected to an income taper test, losing 30 cents of their family tax benefit for every dollar they earn over $94,316 from July 2018, saving the Government $415.4 million over five years. This means 100,000 families will lose access to the family tax benefit.

As a positive, the Budget includes $37.3 billion for child care over three years from July, to be allocated to about one million Australian families. A single, means-tested child care subsidy will replace previous child care benefits and rebates.Families earning $185,710 or less and who need to use more child care will no longer face an annual cap. Those who earn more than $185,710 will have their child care rebates capped at $10,000.

Wealthy families will have their child care subsidies cut off once they earn a combined $350,000 a year — saving taxpayers $119 million over three years from 2018.

If you children are of school age, whether you get more iPads will very much depend on which school you go to. An extra $19 billion will be injected into school funding over the next decade under David Gonski’s needs-based model, originally championed by Labor. But the model will not discriminate between public, private and Catholic schools, so 24 of the nation’s wealthiest schools will experience “negative growth” in their funding and 350 “slower growth”. More than 9400 schools will see an uptick in funding, however. Funding will increase from $17.5 billion this year to $22.1 billion by 2021 and $30.6 billion by 2027.

If you’re wanting to own a home

First home buyers will be able to use voluntary contributions to their superannuation to save for a house deposit. Withdrawals will be taxed at a lower rate, but the amount you can contribute is capped at $15,000 a year and $30,000 all up. Both members of a couple can take advantage of the scheme. There are  new restrictions on foreign property owners could take a little heat out of property prices in the east coast capitals, with intent to  benefit first home buyers. You will be able to withdraw that cash, along with any earnings, from July 1, 2018. The deposit will attract the tax benefits of superannuation — contributions and earnings will be taxed at 15 per cent, and withdrawals will be taxed at 30 per cent below the marginal tax rate.

If you’re a pensioner and down-sizing:

If you lost your pensioner concession card as a result of the assets test change earlier this year, you’ll now have the benefit restored. Older Australians will get a one-off $75 power rebate. And those over the age of 65 who downsize their home can pour up to $300,000 of the proceeds into their super fund. The “downsizer” contribution, which both members of a couple will be able to take advantage of, is in addition to the current contribution rules and caps, and will be exempt from the existing age test, work test and the $1.6 million balance test for making non-concessional contributions. $5.5 billion will also be provided for home support services for the elderly as Australia’s population continues to age.

If you’re an investor:

There are  new restrictions on foreign property owners could take a little heat out of property prices in the east coast capitals. Capital gains tax rules are being tightened for foreign investors, who will no longer be able to access the main residence exemption. The new rule starts on budget night but will be grandfathered for existing properties until June 30, 2019. Other changes from July 1 include increasing the capital gains tax withholding rate for foreign tax residents from 10 per cent to 12.5 per cent from, and reducing the capital gains tax withholding threshold for foreign tax residents from $2 million to $750,000. Together the changes will bring in an extra $581 million over the next four years.

For local investors, negative gearing rules for property investors are being tightened. You will no longer be able to claim tax deductions for travel expenses related to owning and renting an investment property, due to widespread rorting of the system with people claiming deductions for private travel.

Rules are being tightened around depreciation deductions for plant and equipment items such as washing machines and ceiling fans. From budget night, you will only be able to claim the deductions if you actually purchased the item yourself. In the past, successive investors were able to claim depreciation on the same items, well in excess of their value.

From 1 July 2018, purchasers of newly constructed residential properties or new subdivisions will be required to remit the GST directly to the ATO as part of settlement.

If you’re in business:

The $20,000 instant asset tax write-off, introduced in last year’s budget, is being extended for another year to June 30, 2018, and will be open to businesses with an annual turnover of up to $10 million, up from $2 million. The Government has also promised payments of up to $300 million over two years to states and territory governments which cut down red tape for small business. It claims the red tape burden at the federal level has already been reduced by more than $5.8 billion. Small business CGT concessions will continue to be available to small businesses with annual turnover under $2 million, or business assets under $6 million. New integrity measures will be effective from 1 July 2017 to ensure concessions are only accessed in relation to assets used in small business or ownership interests in small business.

The crackdown on the so-called “black economy” is ramping up, with courier and cleaning contractors set to fall under the taxable payments reporting system from 1 July 2018. It is also banning technology that allows businesses to falsify sales records to avoid paying tax. Under the TPRS, which already exists in the construction sector, businesses are required to report payments they make to contractors to the ATO. The government estimates the measure will bring in $318 million revenue over the next four years.

ATO Audit Funding

The Government will provide $32 million for one year of additional funding for ATO audit and compliance programs to better target black economy risks. This funding was to expire on 30 June 2017.

Under this measure, a further year of funding will be provided for the ATO’s ‘Strengthening Foundations’ and ‘Level Playing Field’ programs. ‘Strengthening Foundations’ focuses on businesses with a turnover between $2 million and $15 million that have disengaged from the tax system. The ‘Level Playing Field’ program involves audit, review and intensive follow up and targeting small businesses with turnover below $2 million.

If you’re on welfare

Welfare payments are being consolidated and some new welfare recipients will be subject to random drug testing.

Dealing with Centrelink may become simpler, with the Budget including $5.5 million worth of measures to cut red tape and improve information sharing between departments.

Don’t expect an easy time if you’re unemployed; the Budget includes new measures to crack down on drug users and cheats.

Tough new rules forecast to save $632 million over five years include penalties for people who fail to turn up to appointments due to intoxication.

Drug users and alcoholics will be made ineligible for disability pensions for medical conditions “caused solely by their own substance abuse”.

The agency will also tighten regulation of single parent payments, targeting those who fraudulently collect multiple payments. This could mean single-parent households will be subjected to closer scrutiny to verify their relationship status.

In the mental health arena, more support is on its way, with the Government committing a package of $165 million to mental health support and prevention, including $80 million for community psychosocial services, more than $50 million to support veterans and $15 million for research initiatives at national youth centre Orygen, the Black Dog Institute and the Thompson Institute.

Those with disabilities :

The Government has affirmed it will fully fund its contribution to the National Disability Insurance Scheme, through an increase to the Medicare levy.

It means the NDIS is on track to be rolled out nationally by 2020, giving certainty to Australians with a permanent and significant disability, their families and carers.

The NDIS is on track to be rolled out in NSW and South Australia by July 2018, then the Northern Territory, Tasmania, Queensland, the ACT and Victoria by 2019.

Finally, the program will be rolled out in Western Australia by 2020, through a national partnership agreement with $868 million of Federal funding.

More than $200 million has been allocated to set up an independent NDIS Quality and Safeguards Commission, which will monitor the quality and safety of services and handle complaints.

The Budget also includes $24 million over four years to overhaul the Disability Employment Services program, promising to make it easier for participants to choose and change providers.

For Sydney Siders:

Though still controversial amongst locals, Sydney is getting a second airport at Badgerys Creek in the city’s west. The Federal Government will build and potentially operate it, which will ease pressure on the existing airport as it quickly runs out of capacity. The Federal Government will pour $5.3 billion into the project over the next four years.

Medicare

Wanting to see your GP, you are now in luck, as the Medicare rebate freeze is to be lifted, starting with incentives for doctors to bulk bill from July this year.

You could also save some cash on medicine as doctors will be encouraged to prescribe more generic brands to save the taxpayer $1.8 billion. New listings on the Pharmaceutical Benefits Scheme will include a $510 million new drug for patients with chronic heart failure.

Other Superannuation interests

From 1 July 2017, the Government will include the use of LRBAs in a member’s total superannuation

balance and transfer balance cap. Both of these concepts were initially proposed as part of the

2016/17 Federal Budget and are now legislated to apply from 1 July 2017.

At Tax Time

The Medicare Levy is set to increase by 0.5 percentage points — from 2 to 2.5 per cent of taxable income — to assist funding the $22 billion National Disability Insurance Scheme (NDIS). If  passed by Parliament, the change will kick in on July 1, 2019.

Levelling the playing field is not always an easy task and from this brief analysis what can be concluded is fairness is subjective. How fair this budget is will only be known once initiatives come into force and we see how well Australian’s can live within their means. If you want to discuss particular areas of the budget, our Axis Accounting advisors are ready to share thoughts.

Want to grow your business? Our Free Resources will Help